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ACCA Strategic Professional · Strategic Business Leader · Identification, assessment and measurement of risk

Marlow Pharma's audit committee observes that before any controls, the risk of product contamination is rated very high. After installing automated inspection and staff training, the remaining exposure is rated low. What term describes the low rating remaining after the controls?

The remaining low rating is residual risk, meaning the exposure left after controls and mitigation have been applied. Inherent risk is the original very high level before controls, while risk appetite is the amount of risk the board is prepared to accept.

  1. AResidual riskCorrect
  2. BInherent risk
  3. CSystematic risk
  4. DRisk appetite

Explanation

Residual risk is the exposure remaining after controls and mitigation. Inherent risk is the level before controls, here very high. Risk appetite is the level the board is willing to accept, not an assessment of exposure.

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